As we blogged about last week, a receivership is a remedy available to secured creditors to recover the amounts they are owed by a debtor company under the terms of a secured loan agreement, where the debtor company defaults on the payments.

In a receivership, a receiver is appointed to take possession and control of the debtors assets and to sell or liquidate those assets. In this way, the secured creditor can recover what is due and owing under the agreement.

Types of Receivers

There are two types of receivers:

  • A privately-appointed receiver: appointed by a secured creditor either under the terms of the security agreement;
  • A court-appointed receiver: appointed by the court following an application made by a secured creditor.

Court Appointed Receivers

Court appointment of a receiver starts when a secured creditor makes an application under s. 243 of the Bankruptcy and Insolvency Act (BIA).

The application must be filed in the debtor’s jurisdiction.  The receiver being appointed must be a trustee in bankruptcy that is licensed by the Office of the Superintendent of Bankruptcy

The Powers of Court Appointed Receivers

The powers of a court-appointed receiver are generally limited to the appointment order.

In general, courts will appoint a receiver to:

  • Take possession of all (or substantially all) of the inventory, accounts receivable, or other property of an insolvent company or individual;
  • Exercise any control that the court considers advisable over that property and over the business;
  • Take any other action the court considers advisable.

In addition to the power to sell assets, receivers have, in the past, also been given the power to:

  • Obtain a first charge for additional financing;
  • Obtain a broad stay of proceedings against third parties;
  • Terminate contracts;
  • Assign a debtor into bankruptcy;

Model Receivership Form

Ontario, as well as certain other Canadian jurisdictions, have approved a model form of receivership order which provides a baseline for the drafting of orders providing for receivership appointments.

The model receivership form, also known as the standard template receivership order, is intended to improve the consistency of receivership orders and streamline the court appointment process.

The Ontario form provides that the receiver can:

  • Take possession of and exercise control over the property of the debtor and any proceeds, receipts, an disbursements arising from that property [property in this context has a broad definition];
  • Receive, preserve and protect the property of the debtor, including taking physical inventory, changing locks and security codes, relocating property to secure it, hiring security, obtaining insurance coverage;
  • Manage, operate, and carry on the business of the debtor, including entering into agreements, ceasing to perform any contracts, ceasing to carry on business (in full or in part);
  • Engage consultants, appraisers, agents, experts, auditors, accountants, managers, counsel, and others to assist with the receiver’s powers and duties;
  • Purchase or lease such machinery, equipment, inventories, supplies, etc. to continue the business of the debtor;
  • Receive and collect all monies and accounts now owed or hereafter owing to the debtor, and to exercise all remedies available to the debtor to collect such funds;
  • Settle, extend, or compromise any indebtedness that is owed to the debtor;
  • Execute, assign, issue, and endorse documents of whatever nature in respect of any of the debtor’s property;
  • Initiate, prosecute, and continue (or settle) the prosecution of any and all proceedings and to defend any proceedings now pending with respect to the debtor, the debtor’s property, or the receive;
  • Market any or all of the property, including advertising and soliciting offers with respect to the debtor’s property and negotiating the terms and conditions of sale;
  • Sell, convey, transfer, leaser, or assign the debtor’s property.

Exemptions for Receivers

In general, receivers are exempt from:

  • The obligations of a successor employer;
  • The provisions of the Bulk Sales Act;
  • Liability stemming from the proceeds of the estate;
  • Environmental liability.

Eli Karp is an experienced commercial litigator who focuses on the financial elements of legal disputes. Eli continually strives to minimize the impact of commercial disputes on his client’s financial security, and resolve litigation as quickly as possible, so clients can get back on their feet. We are available seven days a week to discuss strategy and answer questions, so clients know their matter is in good hands. Schedule your consultation online, or by calling us at 416-769-4107 x1.